Goldman Highlights ‘Social Contract’ Income Investments

By Michael Aneiro

Goldman Sachs is out with an income-investing report that focuses on dividend and share buyback ideas, based on rising corporate cash balances that Goldman sees being increasingly allocated toward shareholder-friendly activities. Goldman’s equity research team says that with fixed income yields remaining low, the opportunity to drive higher total returns via high and sustainable dividend payouts remains a key component of its recommendation set, which includes the following:

Highest yields at reasonable valuations. GS looks for high yielding names that are trading at a discount relative to their sector peers, suggesting further multiple expansion and total return potential. GS recommends Och-Ziff Capital Management LLC (OZM) and Embraer (ERJ), among others.

Perhaps the key paragraph from Goldman’s report:

Our top income idea is to recommend companies that offer a “social contract” to their shareholders: i.e., returns outside of capital appreciation. To that end, we identify those who are able to provide the highest total returns to their shareholders via a combination of dividend yields and accretive, share-reducing buybacks.

And in support of that recommendation, here’s Goldman’s list of its buy-rated companies with over 5% estimated total return in 2012 from EPS growth and dividend yield: